Intersting Article from my Tax Guy...

Every now and then I get a great piece of advice, an interesting email, or come across an interesting news story I like to share. This particular email from my tax man I thought was worthy of spreading the word to my fellow tax paying citizens. Times are tough for everyone.

EMAIL:

IRS audits have more than doubled in the past decade. The number of taxpayers targeted is likely to continue to increase in the years ahead as the federal government tries to boost tax revenues to close its huge budget deficit.

High earners, small-business owners, the self-employed and those with offshore accounts face the greatest risks -- but an audit can happen to anyone.

Most audits are simple "correspondence exams" -- an IRS computer identifies a math error... mismatched data... a missing form... or some other straightforward mistake. Once you are contacted by the IRS, you mail in the additional payment or information requested and the matter often is resolved without further fuss.

You face a much more significant audit if the IRS requests a meeting. Although many taxpayers choose to handle this on their own, it is best to hire an experienced tax attorney, certified public accountant (CPA) or enrolled agent (who is required to pass a test to represent taxpayers in dealing with the IRS). This could cost from a few hundred to a few thousand dollars, depending on the experience level of the professional you hire, the complexity of the audit and where you live. Costs could climb even higher if there are appeals or the case goes to court.

Whether you work with a representative or go it alone, it pays to be aware of IRS agents’ latest tactics... and the often-overlooked tools available to you.

THE TRICKIEST TechniqueS

The surprise phone call. Prior to 2009, audit notifications almost always were sent through the mail. Now IRS agents sometimes contact taxpayers by telephone out of the blue to tell them that they are being audited. The shock of this call may cause a taxpayer to say more than he/she should.

What to do: If you receive such a call, take down the IRS agent’s contact information, say that you are represented by a tax preparer or tax lawyer (or that you may hire one) and that this representative will be in contact. Say nothing else -- you have a legal right to consult a tax adviser before responding to IRS questions. And be aware that in some cases, the caller could be a scammer posing as an IRS agent in hopes of obtaining sensitive data, so don’t supply personal information.

Inflexible deadline. The IRS requires taxpayers to respond to most audit notices within just 15 or 30 days. Those deadlines have become increasingly inflexible in recent years.

Example: Fail to respond to a correspondence exam notice within 30 days, and the disputed amount becomes a final assessment to be handled by the collection department, making it very difficult and expensive to challenge the IRS’s position -- even if you can prove that the IRS is wrong.

What to do: Always contact the IRS by the deadline on the notice, and ask what in particular the IRS wants to cover. Do so by certified mail so that you have proof of when your reply was received. If you intend to hire a representative, do this as soon as possible so that your rep has time to respond.

Casual chitchat. Anything you say to an IRS agent can be used against you, and agents increasingly are trained to get taxpayers to say things they shouldn’t.

Example: An auditor swapped fishing stories with the owner of a part-time boat charter business, then asked whether the business ever was likely to make money. The owner jokingly replied that he loved fishing so much that he didn’t really care if it did. The agent said this quip showed that the business was just a hobby, and the owner’s tax losses were disallowed.

What to do: If you work with a representative, politely refer all questions from the IRS to your tax pro -- even questions that seem innocuous. Let your representative meet with the IRS without you unless the representative specifically advises you to accompany him. If you do not hire a representative, politely avoid small talk. Respond to financial queries by writing down the questions and promising to provide the requested information as soon as possible. Supply these answers in writing to reduce the possibility of misspeaking or saying too much, and keep a copy.